It is difficult to overstate the damage that Covid-19 has levelled upon us: over 5 million cases of the virus and deaths creeping towards half a million. The lockdown aimed at reducing the spread has hit economies hard, which are expected to contract by 3% in 2020 (and over 6% in advanced economies) according to projections from the WEF. This is much worse than the financial crisis of 2008-9, which was the first recorded contraction of global GDP.
Supply and demand
Though this paints a grim picture, there is hope. Over 2006-7 the bubble burst of United States real estate, shredding the value of financial systems that were highly leveraged against it. This created a demand shock: prices fell and economies shrank. This time was different: covid-19 meant that production ground to a halt in many sectors, creating a supply shock. And it is easier to recover from a supply shock than a demand shock.
Whilst the lost growth from the financial crisis is estimated to be well in excess of $10 trillion (over a sixth of the 2008 global economy), forecasts for 2021 are that we will inflect to growth of nearly 6%.
All that glitters is not gold
Though there is hope, we have to remember that we are turning the key on a system that was far from ideal. Global growth has been faltering and productivity perpetually low. In the UK, we had only just witnesses the so called ‘end of austerity’, yet in the most recent data from the IFS, median household income in the UK had stalled completely and income inequality, measured by the Gini coefficient, remains substantially higher than it was in the 1970s.
If all we are doing is restarting the status quo, what hope is there for us?
What is going on?
Many of the causes of, and answers to, our current predicament lie in the ashes of the financial crisis. As economies contracted many businesses failed, and those that survived could only do so with significant workforce layoffs. At the point that businesses started to recover, they capitalised on the high levels of unemployment and glut of skilled workers. This meant the resulting growth, particularly in the UK and North America, was leveraged to a far greater degree against increased headcount than against capital expenditure. Whereas technology and development of the workforce had accounted for past economic growth, businesses were now buying their way out with cheaper labour.
Overfishing is positive in that it provides food, but it is ultimately unsustainable. So too, we remember the positive of low unemployment, but forget about the negatives. For many in employment, they found themselves in low value work as there was little incentive to invest in technology when wage bills were low. On the other end of the spectrum, skills gaps were created as the same key capabilities remained in high demand. The lack of planning meant that businesses would throw money at buying these skills in the marketplace but remained reluctant to invest in training and development to grow capability themselves. Even when the government introduced the apprenticeship levy to force this investment, it faltered within businesses who were unable to conduct the necessary workforce planning.
What did employees do? We worked longer hours than most of our European neighbours, damaged our wellbeing and still suffered painfully low productivity.
Overheat or reset
Though there are vast differences between the financial and covid-19 crises, business behaviours remain worryingly similar. In an effort to preserve cash, businesses were quick to batten-down the hatches: people have lost their jobs and furlough is delaying an inevitable round of layoffs. Those still working are often finding themselves working longer hours to pick up the slack. As businesses grow again, they are likely to buy their way out again with a glut of cheap labour. Yet this isn’t the same workforce as 2010, todays workers have lived through austerity and chronic underinvestment in skills and technology. Restarting the system with a ‘rinse and repeat’ of past mistakes is unsustainable for both people and the economy.
Now is the time to reset. With effective workforce planning, organisations can examine their work and workers in light of the pandemic. What are our business objectives and what work is needed to achieve it? How can that work be done differently? What investment can we make to get the best value out of our people? These are just some of the questions to ask yourself now before you restart the system.
This article originally published 23 July 2020 by the Workplace Wellbeing Alliance
Adam Gibson is a global leader in Workforce Planning, creator of the Agile Workforce Planning methodology and a popular keynote speaker. He has successfully implemented and transformed workforce planning and people analytics in businesses across both the public and private sector. As a consultant, he advises company executives on how to create a sustainable workforce that increases productivity and reduces cost; he is also the head of CIPD's workforce planning faculty.